Investors rush to cash in on gold ETFs as volatile equities keep them on edge

Retail investors grabbed a golden opportunity to book profits on gold in March as heightened market volatility and stock price corrections soured their return expectations from equities. Equity fund inflows fell to an 11-month low last month, while investors cashed out on the precious metal, capitalising on its outperformance during these uncertain times.

According to the latest data from the Association of Mutual Fund Industry (Amfi), released on Friday, gold exchange traded funds (ETFs) saw net outflows of around ₹77 crore in March – the first time in over a year – as investors rushed to take gains amid soaring gold prices.

“Gold has been consistently hitting all-time highs since the start of the year. Hence, people who invested in the past six months or maybe a year back might have booked profits in March,” Satish Dondapati, manager of passive funds at Kotak Mutual Fund told Mint.

Gold standard

To be sure, gold has outperformed every other asset class globally of late, including equities and debt, returning around 23% so far this year. Last week it shot up 6% to touch a new high of $3,235.89 per ounce.

A gold ETF is a passive instrument that invests in gold bullion and tracks the price of physical gold. It allows investors to gain exposure to gold prices without physically owning the metal.

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With gold prices rising, gold ETFs have seen dramatic swings in net inflows this year. After surging nearly 83% in January, inflows plummeted almost 50% in February, followed by net outflows in March.

The current trend of outflows, however, is likely to continue. Existing investors may have a chance to “strike gold twice” in the coming months as looming uncertainties are expected to further fuel gold prices, experts said.

“Gold thrives on uncertainty, and we can see a lot more volatility in the near term amid the ongoing US-China tariff impasse and developments involving other trade partners — particularly the EU, which currently has a temporary reprieve from Trump,” said Kaynat Chainwala, associate vice president of commodity research at Kotak Securities. She expects the gold rally to accelerate sharply if the price sustains above the $3,300.

On Friday, China raised tariffs on US imports from 84% to 125%, retaliating against US President Donald Trump's move to increase duties on Chinese goods to 145% while pausing tariffs for most other countries. This stirred fresh fears of a recession in the US, triggering a flight to safe-haven assets such as gold.

Also read: Mint Quick Edit | Gold's price spike reflects a global anxiety

Experts said gold ETFs could thus see more redemptions in the near term as the expected increase in gold prices creates more profit-booking opportunities for retail investors.

“Expectations of global interest rate cuts, uncertainty around the ongoing tariff war, and a weakening US dollar are likely to further support gold prices. So we think the trend of profit booking will continue for the next couple of months,” said Dondapati from Kotak Mutual Fund.

Proceed with caution

While experts were optimistic that the gold rally would continue, they warned against fresh investments in the precious metal, saying its current price point may be too high make similar returns as seen six months ago. They also pointed out that traditionally, gold has corrected roughly 10-12% in the months following lifetime highs.

“I would not recommend investors buy gold at current prices as there is a possibility of a bit of correction from here. One should accumulate in bits and pieces at every point of the correction rather than going all in,”said Pranav Mer, vice president of equity broking group's commodity and currency research team at JM Financial Services.

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However, experts said existing investors should continue to have at least 10-15% exposure to gold for diversification.

“Gold prices saw some volatility in the last two weeks due to margin calls on other assets. But the fundamentals of gold remain sound,” said Manav Modi, senior analyst of commodity research at Motilal Oswal Financial Services. “I think a buy-in stance could be maintained from a medium to long-term perspective, but only if a dip opens up.”